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12 Aug 2020

Belarus’ central bank expects annual inflation at 5-5.3% till year end

Belarus’ central bank expects annual inflation at 5-5.3% till year end
Pavel Kallaur. An archive photo

MINSK, 12 August (BelTA) – The central bank expects the annual inflation to stay at 5-5.3% till the end of the year, BelTA learned from Chairman of the Board of the National Bank of the Republic of Belarus (NBRB) Pavel Kallaur after the board’s meeting held on 12 August to discuss monetary policy.

Pavel Kallaur said: “The annual inflation is expected to be at 5-5.3% till the end of the year. A combination of lengthy disinflation factors, which effect is already manifested, will help keep prices stable later on.”

The factors include disinflationary external conditions. Economies all over the world are starting to recover after a deep recession in Q2 2020 as countries lift coronavirus-related restrictions. At the same time it is assumed that the recovery of economic activity will be lengthy due to the coronavirus infection situation. It will continue suppressing foreign inflation below projections till the end of 2021.

In these conditions the Bank of Russia, the European Central Bank, and the U.S. Federal Reserve System are expected to pursue a soft monetary policy.

“On the whole, external conditions will have a restraining influence on prices for the goods Belarus imports,” Pavel Kallaur said.

As for the Belarusian economy, the NBRB head believes that slow recovery of the external demand will restrain the growth of business activity.

The official said: “Budget measures will continue providing support to the Belarusian economy. It will help enterprises and the population overcome consequences of the pandemic and will help gradually restore the aggregate demand. The stimulating effect of the budget policy measures is expected to manifest strongly in 2020.”

In his words, as economic growth resumes, the volume of state budget incentives will be gradually reduced. As a result, the deficit of the country’s budget will gradually go down from this year’s high level.

“As economic activity recovers, the balance of payments will be improved. We expect foreign currency sales on the home market to exceed foreign currency purchases, thus helping keep up the gold and foreign exchange reserves. The exchange rate of the national currency will stay close to the equilibrium,” Pavel Kallaur said. A complex evaluation of economic development dynamics indicates that internal factors will have a disinflationary effect in the medium term.

During the meeting held on 12 August to discuss monetary policy the Board of the National Bank decided against changing the refinancing rate (7.75% per annum) and rates on operations designed to regulate the liquidity of banks. The decision was prompted by a medium-term forecast of dynamics of consumer prices, the development of the economy and the monetary and credit sphere. The decision takes into account the measures that have been implemented in Belarus and the world, expectations, and projections concerning the development of the world economy and regional economies. The current situation on the financial market was taken into account.

Business activity dwindled in Belarus in Q2 2020. External demand went down as well as foreign trade. The financial state of Belarusian enterprises worsened. Their purchasing power was reduced.

The growth of monetary income of the population slowed down. The behavior of natural persons on the market changed. On the one hand, the volume of non-essential purchases went down. Consumer activity and domestic demand as a whole dropped as a result. On the other hand, Belarusians primarily saved money in foreign currency and in unorganized forms. Bank deposits in Belarusian rubles and foreign currency went down. Belarusians bought more foreign currency than they sold.

Pavel Kallaur said: “These trends have become more pronounced recently, which testifies to a surge in devaluation expectations. At the same time we believe the situation will not last.”

In his words, countercyclical measures implemented by the government and the central bank have provided considerable support to the economy. The measures included the optimization of the debt burden on enterprises and the population and the loosening of some prudential requirements for banks. These measures weaken the disinflationary influence on the part of the domestic economy.

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